November/December 2018  
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Asia-Pacific Tax Bulletin
This free e-mail service informs you about the contents of the forthcoming edition of Asia-Pacific Tax Bulletin.

Issue No. 6 - 2018 of the Asia-Pacific Tax Bulletin is now available online.

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Number 6 - 2018 contains the following:
China (People's Rep.)

Preferential Tax Regime for High- and New-Technology Enterprises: Analysis of the Deviation from the Nexus Approach

Gracious Avayiwoe

This article examines the 2017 progress report of the Inclusive Framework for BEPS Action Plans on China’s high- and new-technology enterprise preferential tax regime. It discusses the regime’s functional depiction of, rather than technical resemblance to, the nexus approach of the Base Erosion and Profit Shifting Action Plan 5. The author identifies technical discrepancies, and confirms the functional depiction by establishing that China’s recognition criteria for qualifying taxpayers, intellectual property assets and revenue, and qualifying expenditure strongly demonstrate a direct link between the qualifying taxpayer, the research and development expenditure and the resulting intellectual property income – the underlying doctrine of the nexus approach.

China (People's Rep.)

The Impact of the Multilateral Instrument on China

Na Li

This article assesses the impact of the BEPS Action 15 Multilateral Instrument (MLI) on China by analysing the preliminary positions and reservations that China made when it signed the MLI and by questioning the compatibility of the MLI Explanatory Statement with the interpretation of Covered Tax Agreements in China. The author contends that implementation of the MLI will increase the discretionary power of tax authorities, which may lead to more uncertainties for taxpayers and more disputes arising from the interpretation and implementation of tax treaties. The author is also concerned that treaty shopping arrangements might increase when the anti-BEPS provisions of the MLI only modify some of the Covered Tax Agreements.

Hong Kong
On the Source of Interest
Stefano Mariani

In this article, the author canvasses the legislation and common law jurisprudence that is relevant to the determination of the source of interest in Hong Kong. He argues that the source of interest is not susceptible to a single, over-arching test and that its ascertainment is by its very nature multifactorial. He contends that, in its Departmental Interpretation and Practice Note No. 13, the Hong Kong Inland Revenue over-relies on the judicial “provision of credit test” in its most simplistic form. In the absence of authoritative Hong Kong jurisprudence on the matter, the author advocates focussing the analytical inquiry not the locality of a debt with respect to which interest is payable, but the proximate source of the obligation to pay interest. Accordingly, other factors may be more important than the provision of credit test.


Tax Challenges Arising from Digitalization

Suranjali Tandon

In this article, the author argues that, since economic activity is no longer preconditioned on physical presence, the existing international tax rules are insufficient. Using evidence of base erosion and profit shifting by digitalized businesses, the article discusses the adequacy and utility of alternative measures for taxing profits arising from digitalized operations – including withholding tax, an equalization levy and the test for significant economic presence – and the consequences for source countries. The author finds that the test for significant economic presence may be a useful measure; however, its wider acceptance hinges on international consensus.


Do Tax Audits Contribute to Tax Revenue and Deter Tax Evasion? – An Exploratory Study of Tax Audits in Pakistan

Bilal Hassan

In this article, the author examines the contribution that tax audits make to direct tax collections and deterring tax evasion in Pakistan. From his empirical analysis of the number of audits performed, tax revenue collected and GDP data in the tax years from 2019/10 until 2015/16, the author concludes that tax audits have made a meagre contribution to direct tax collection and failed to deter tax evasion. The article offers a range of reasons for these shortcomings.

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